Competitive Denver Insurance Market Awaits National Health Reform

WASHINGTON, DCDespite waiting until nearly the 11th hour to approve a Medicaid expansion, Colorado is at the forefront of preparing for national health reform relative to many other states, according to a new Community Report released today by Center for Studying Health System Change (HSC).

Funded by the Robert Wood Johnson Foundation (RWJF) and based on interviews with local health care leaders in 2012-13, the study examined the Denver region’s commercial and Medicaid insurance markets.

Even before passage of national health reform, Colorado was proactive in regulating the small-group insurance market and expanding Medicaid and the Children’s Health Insurance Program (CHIP) to more low-income adults and children. And, Colorado was among the first states to pass legislation creating a state-run health insurance exchange.

Still, similar to other markets, Denver-area health plan executives, benefits consultants, brokers and others expressed concerns about the market’s readiness for open enrollment in the exchange on Oct. 1.Top concerns include the uncertainty about the impact of health reform on risk selection and premium costs. Market observers also predicted changes in employer health benefit strategies as they attempt to maintain affordable coverage.

Key findings of the report,Denver: Competitive Insurance Market Awaits National Health Reform, which is available online at www.hschange.org/CONTENT/1360, include:

Hospital negotiating clout. The area’s four hospital systems reportedly have significant negotiating leverage over payment rates. This leverage may be growing as hospital systems buttress their position by, for example, employing physicians, upgrading facilities and expanding their geographic reach by building new facilities and affiliating with other hospitals.

Pared back employee benefits.Employers are embracing high-deductible health plans, adopting defined-contribution strategies and, most recently, adopting limited physician-networks to help moderate rising premiums. However, the commercial market does not appear to be moving toward innovative provider payment arrangements as a cost-control strategy.

More Medicaid provider accountability. In the wake of significant Medicaid enrollment growth and the earlier demise of risk-based Medicaid managed care, Colorado has adopted an Accountable Care Collaborative model. Under the approach, health plan or provider entitiesâ€”known as Regional Care Collaborative Organizations, or RCCOsâ€”are responsible for linking Medicaid enrollees to health care and social services in a coordinated manner, with the goal of improving health outcomes and reducing costs for the state.

Significant plan interest in the exchange. Notwithstanding considerable uncertainty about setting premiums, the four large carriers currently serving the individual and small-group markets, along with possible new market entrants, are expected to participate in the exchange.

Possible rate shock.Respondents are concerned that new regulationsâ€” particularly requirements for more comprehensive benefitsâ€”will drive up premiums, especially forÂ young, healthy people in the market. If many forgo coverage, health plans likely will attract sicker-than-average enrolleesâ€”known as adverse selectionâ€”in the exchange.

Redoubled cost-control strategies. In response to stricter limits on patient cost sharing and requirements for more comprehensive coverage, employers increasingly are expected to explore new ways to control costs. This may include offering plans with less choice of providers and possibly defined-contribution approaches where employees receive a fixed amount to purchase coverage on their own.

As health reform unfolds in the coming years, there will be ongoing issues to track in the Denver-area health care market, including:

To what extent will Colorado’s early preparations for reform pay off in terms of meeting deadlines and enrolling people in private or Medicaid coverage?

Given the relatively lean benefits in this market, will changes to meet reform requirements contribute to premium rate shock, reducing affordability and discouraging young, healthy people from gaining coverage?

Will health plans or hospitals be more successful at aligning with physicians and with what effect on overall negotiating leverage between plans and hospitals?

Will limited-provider networks prove to be the main focus of employers and health plans in the Denver area to curb costs? Will other innovative payment arrangements, such as ACOs, emerge in the market?

Will the RCCOs prove more successful than Colorado’s past managed care strategies in improving access and quality while controlling the cost of care for Medicaid enrollees?

What role will brokers play in helping small employers buy insurance? Will brokers increase their presence in the nongroup market by functioning as navigators in the state insurance exchange?

The Center for Studying Health System Change is a nonpartisan policy research
organization committed to providing objective and timely research on the nation's
changing health system to help inform policy makers and contribute to better
health care policy. HSC, based in Washington, D.C., is affiliated with Mathematica Policy Research.